Dubai Shatters Solar Price Records Worldwide — Lowest Ever!

What a year this has turned out to be. To be honest, everyone expected solar to grow at a “good” pace. But the sector has outdone most expectations — taking the fight to the fossil camp at every possible chance.

Here’s a quick recap before we delve into the big news. The year started with Recurrent Energy signing up a deal to sell solar electricity for 5 cents/kWh in Austin, Texas, without any support from the state. Even after accounting for the federal tax credit, the actual price would have been just about 7 cents/kWh. Later this year, in just a few weeks from each other, India and then Brazil announced low-cost solar power — within a band of 8–10.3 cents/kWh. This was without any subsidy whatsoever.

It’s hardly been a month since the previous announcements, so how much south would you think the solar prices would go? Well, the exact number is 5.98 cents/kWh, and the venue for this magic is Dubai. Without any “government support.”

The unsubsidised prices (that’s a plural, for there is more than one) bid in a commercial setting go on to show that the time has come for rapid expansion of solar in the Middle East.

Sun rises on Dubai

The state utility company of Dubai, the Dubai Electricity & Water Authority (DEWA), had opened a tender for a 100 MW solar power plant for the second phase of the Mohammed bin Rashid Al Maktoum Solar Park early this year. The park is located on a patch of 40 square kilometers of land just south of Dubai. While the solar park had come alive with a 13 MW solar PV plant back in 2013, its ultimate goal is to grow up to a gigantic 1,000 MW solar park by the summer of 2017.

DEWA had called on solar project developers to submit their bids for a fixed tariff over a 25-year period under a Build-Own-Operate (BOO) model. This was a much-awaited opportunity for local players who were missing out on solar action due to delays in the mega Saudi plans to deploy solar power. Of the 24 solar developers who started, only 10 remained till the final round of the bidding.

Riyadh-based Acwa Power (owned by eight Saudi conglomerates) bid a record low tariff of just 5.98 cents/kWh. To get an idea about how aggressive this is, consider that the average of the 10 finalists’ bids was 9.35 cents/kWh, with the highest bidder being the Chinese Huaneng Power International at 14.71 cents/kWh.

In the runner-up position is a consortium of Spanish developer Fotowatio Renewables and Saudi Abdul Latif Jameel Energy, bidding at 6.13 cents/kWh. That is even lower than the previous lowest solar tariffs!

SunEdison and First Solar, perhaps betting on their successful Indian and Brazilian experience, hovered around 8–9 cents/kWh. You can read the complete bid results at this link. It is quite interesting to compare the bids on the basis of tracking technology they had offered. The lowest bid proposed to use a simple fixed system.

Dr. Moritz Borgmann Partner at Apricum Group shares that Acwa Power did not just stop at bidding for the 100 MW project which was up for grabs. But it also provided alternative bids in which it proposed to immediately build the complete 1,000 MW at a tariff of 5.4 cents/kWh! That’s more than a 10% discount on the price they had bid for the 100 MW solar plant — again, the lowest solar bid in the world. Perhaps black friday came to Dubai a week too early! 😀

One more amusing detail comes up if you take a look at the solar panels the bidders have mentioned. First Solar’s name pops out at two places. Not only is First Solar one of the project bidders, but it also seems that Acwa Power will be using First Solar’s panels. That should be something to cheer the company up.

Renewables International makes an intriguing comparison between solar electricity prices in Germany (~10.85 cents/kWh) and in Dubai. As per NREL data, the insolation in Dubai is a little more than twice that in Berlin. So, on the basis of German prices, the prices in Dubai would be around 5.4 cents/kWh. Exactly what Acwa power has proposed if it would be allowed to build the complete 1,000 MW solar park!

Of course, this is too simplistic a comparison. Being located in a desert environment, the efficiency of the panels would be reduced by both the dust as well as the higher operating temperature. Regular cleaning of the PV modules can only add to the cost.

Dr. Borgmann also informs that low-cost financing has been a key ingredient to keep the tariffs low. In the politically stable environment of Dubai, project developers have been rumoured to secure loans at a margin of 175 bps over LIBOR, on a floating rate basis. Assuming 300 bps for the hedge to fix the interest rate, this would probably mean a 5% fixed-rate cost of debt, give or take.

About the Author

Anand Upadhyay is an Associate Fellow with The Energy and Resources Institute (TERI, New Delhi) - an independent, not-for-profit research institute focused on energy,
environment, and sustainable development. Anand follows the Indian solar market at @indiasolarpost. He also writes at SolarMarket.IN. Views and opinion if any, are his own.

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